Real Estate Donations and Tax Legislation

The situation for charitable gifts of capital in Canada has been continually developing since 1996. Malcolm Burrows from C D Howe Institute conveys in the recent article Unlocking More Wealth: How to Improve Federal Tax Policy for Canadian Charities that there is time to make the following step; augmenting capital gains exemptions to donations of real estate.

Capital gifts have been answerable to more than 20 tax initiatives by the Canadian government over the last 13 years. Charities have observed a drastic increase, nearly 150%, due to these measures.

However, a few factors force us to think about more advancement to these policies. Although the volume of gifts are rising, the total of people donating is smaller. What is salient is that donations are coming as a one time only big donation rather than regular, but smaller, contributions. With having smaller regular donations, charities are exposed to the economic climate.

The significance of these policies also resulted in apparent market imbalance, as real estate and private company shares are not accepted for capital gains exemption. Charities and owners are left with unfavourable circumstances. In reality, real estate is very rarely donated.

There are many issues to be faced when real estate is gifted. Working out a sensible market price of the property gifted is a problem that faces policy makers, especially when some donors may not give authentic values. Problems can arise for the charity to whom the bequeath has been bequeathed too. A charity may endure more concerns when they receive real estate bequeathing than capital. After donation the property is susceptible to taxes and upkeep which present their own set of problems for a charity.

Even though there are problems, there are choices accessible. Malcolm Burrows proposes two potential ways of making real estate donations.

The first option is a cash bequeath after the real estate is sold. This way charities no longer have to interest themselves with the problems of having a property on their hands and as the property is sold there is no need for it to be valued. The Income Tax Act has permitted the cash from some property sales to be used as revenue since 2000. Increasing the legal base to accept real estate properties should allow for any percentage of the sale to be gifted.

If someone wants to contribute a bequeath of real estate. Real estate valuations can be manipulated which is the main issue with this type of bequeath. Issue like this can be resolved in a variety of ways. This can be done by not allowing the property to be sold by the charity for up to 10 years and the services of independent real estate appraisers.

Real estate symbolizes a huge share of both individuals' and companies' assets and it is fruitless to dissuade the likelihood of the charitable donation of such assets. A great deal of work has been done in the scope of tax exemptions legislation, but it has left the market uneven. The next realistic step of addressing this inequality should be by means of spreading tax exemptions to the portion of real estate donations.